Analysis… Finance and guidance
Kristin Schreiber, director of the COSME programme within DG Growth at the European Commission, explains how the programme supports SMEs and works with Horizon 2020 to boost innovation.
Innovative SMEs taking results from European research and turning them into world-beating products can receive support from COSME and Horizon 2020. European SMEs play a crucial role in fostering innovation as they can market new products quickly and adapt easily to the needs of their customers. They are the engines of the European economy: small enterprises provide two out of three jobs in the private sector and are responsible for 85% of new jobs created. Despite the positive impact SMEs have on the European economy, however they are still facing many obstacles, especially when it comes to access to finance. This is why the European Commission is committed to improving the business environment for SMEs and helping them thrive. The EU programmes COSME and Horizon 2020 are the main tools to help small businesses access the funding and advice they need to grow.
The EU COSME programme
The European COSME programme is one of the main tools to make it easier for SMEs to access loans and equity finance. COSME is the European programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises running from 2014-2020. With a planned budget of €2.3bn, COSME will be able to mobilise up to €25bn of financing for SMEs from financial intermediaries.
The programme makes it easier for SMEs to access finance in all phases of their lifecycle – creation, expansion, or business transfer. Thanks to COSME, European enterprises can make better use of the opportunities in the EU Single Market and also expand to third countries. The programme also promotes the development of clusters in the EU, specialised in cross-sectorial co-operation in areas such as emerging industries. Eventually, it will help create a more business-friendly environment in Europe and encourage more people to become entrepreneurs.
The COSME programme is particularly interesting to innovative small and medium-sized companies, as it offers improved access to finance which can be complemented by financial instruments envisaged in the Horizon 2020 programme. Second, the programme offers services provided by the Enterprise Europe Network (EEN), a 600-member organisation that offers customised advice and assistance to SMEs wishing to expand abroad and innovate.
How will the COSME programme work?
COSME will improve access to finance for SMEs by mobilising business loans or leasing finance and equity investments.
The Loan Guarantee Facility under COSME will provide funding guarantees for financial intermediaries (e.g. banks, leasing companies) to leverage more loans and finance leases to SMEs. The impact will be substantial as €1 invested in a loan guarantee creates up to €30 of financing to SMEs. These guarantees will help many SMEs who would otherwise not be able to obtain funding.
The Loan Guarantee Facility will provide guarantees to financial intermediaries for SME loans up to €150,000. For loans above this threshold the InnovFin SME Guarantee facility under Horizon 2020 will facilitate access of innovative SMEs and small mid-caps to debt financing via guarantees. It is expected that up to 330,000 SMEs will receive loans backed by COSME guarantees. In total, the value of lending should reach €21bn.
A part of the COSME budget, the Equity Facility for Growth will be devoted to improving access to venture capital for the expansion stage of SMEs in Europe. It is expected that some 500 firms will receive equity, with the overall amount reaching up to €4bn. This should attract further finance by co-investments from other public and private sources.
The COSME Equity facility is complemented by the InnovFin SME Venture Capital. It supports the provision of equity and quasi-equity finance to SMEs in their early stages within the Horizon 2020 programme. To allow for a broad investment spectrum, investments into multistage funds can be financed through a combination of resources from COSME and InnovFin.
The EU portal on access to finance provides complete and updated information on financing available for SMEs through the various programmes provided by the EU and the European Investment Bank group.
Horizon 2020 and innovative SMEs
Within Horizon 2020, Europe’s research and innovation funding programme, over €9bn will be targeted to supporting SME innovation. Almost one-third of this amount is reserved for a new, dedicated SME Instrument that supports innovative business ideas with the potential
to shape new markets. Funding for SME innovation is no longer restricted to collaboration with research institutions. SMEs can undertake their innovation projects on their own or with clients, suppliers or other partners according to the need of their business development plan.
The SME instrument under Horizon 2020 helps SMEs in three phases:
* To verify the technical, economic or legal feasibility of a business idea (phase one);
* To implement an innovation project that is crucial to realise the growth-ambitious business plan (phase two); and
* To support the SME in accessing new geographic markets or value chains and effectively manage and finance the growth processes. Support in the third phase is from the moment an SME is awarded financial support from phase one or two.
Improving access to finance is not merely a supply side matter. To increase the supply of early stage capital, the businesses have to be investment-ready. However, small enterprises often lack the management competencies needed to attract investors, grow internationally and become strong companies. This is why, for the first time in an EU programme, the grant support is complemented by services aimed at enhancing innovation management skills and accessing overseas markets and investors to finance growth.
The InvestHorizon programme will boost the investment-readiness of European SMEs and SME Instrument beneficiaries, in particular improving their capacity to successfully achieve commercialisation and company growth, which is the objective of the SME Instrument.
EEN: local support for SMEs across the EU
Providing coaching and other management support services to SMEs across Europe is challenging. A system of regional service providers has been set up to make it easier for ambitious and innovative SMEs to access coaching and advice. The EEN, financed by the COSME programme, plays a crucial role in this respect. The network is made up of around 600 business support organisations in all European countries and they can provide support to SMEs in their own language.
Enhancing the innovation management capacity of SMEs is a new service provided by the network. It aims to increase the efficiency of SMEs’ innovation activities – from the innovative idea to the market uptake. This new service is financed by Horizon 2020.
At European level, the available budget to support SME innovation is still significantly smaller compared to the innovation expenditure of EU countries and private investors. Nonetheless, these EU instruments should be used to influence the development of national and regional programmes.
In the case of the Horizon 2020 SME Instrument these effects have started to realise results. The structure of the EEN is now in place to create even more synergies between Horizon 2020 and COSME and – even more importantly – between European, national and regional business support.
Kristin Schreiber
Director
COSME Programme
DG Growth
European Commission
Entrepreneurship and Small and medium-sized enterprises in the EU
This article first appeared in issue 8 of Horizon 2020 Projects: Portal, which is now available here.
